Captain Ed is a father and grandfather living in the Twin Cities area of Minnesota, a native Californian who moved to the North Star State because of the weather. He lives with his wife Marcia, also known as the First Mate, their two dogs, and frequently watch their granddaughter Kayla, whom Captain Ed calls The Little Admiral... [read more]

Ever since prices began spiking at the gas pumps last year, people have demanded an investigation into why the costs of filling one's tank has skyrocketed. Conspiracy theories have abounded, especially in the blogosphere, complete with energy executives deliberately overbidding for crude oil and artificially holding down refinery capacity. Now, however, the New York Times has found the conspiracy in Washington DC, where they meet every day under a big dome and plot to run our lives and spend our money:

Nine months after Congress passed major energy legislation, one provision affecting gasoline formulas is helping to drive the price of gas up much faster than the rising price of crude oil.

And because the new gasoline recipe contains less energy, mileage per gallon is declining.

On Friday, the 270th day after President Bush signed the Energy Policy Act of 2005, the law ended the requirement that gasoline sold in areas prone to air pollution include an "oxygenate," or a molecule including hydrogen, carbon and oxygen. A result is that refiners over most of the country's big gasoline markets, anticipating the rule, have already dropped the chemical MTBE. ...

To replace it, refiners have turned in part to ethanol, which is also an oxygenate but not a pollution worry.

Ethanol, which is made from corn, costs more than gasoline, though, and shipping it from the Midwest, where it is made, is cumbersome and expensive, because it has to go by barge, railroad tank car or tanker truck, rather than pipeline.

MTBE has been an environmental problem for years, and many groups have lobbied to get it out of gasoline formulations in the states which required it as well as at the federal level. The change enacted by Congress and signed by Bush allows them to finally rid themselves of a litigation nightmare. In fact, it all but requires them to do so, because the one defense they have against class-action lawsuits in the future will be the government requirement to use the additive.

This creates a problem for consumers, however, because MTBE is both cheaper and more efficient than ethanol. The usefulness of any energy product relates to the amount of energy released from it. Ethanol releases only two-thirds of the energy released by MTBE, which means that the formulations at the gas pump release less energy for car engines. The emissions may be cleaner, but the engine must burn more fuel to achieve the same power output. That results in lower gas mileage and more frequent refills.

Now we have a commodity that already has production issues after Hurricane Katrina, leading to higher spot prices for the refined product. Gasoline is a commodity in its own right, a fact not well known by the public. We import refined gasoline as well as crude for our own refineries. With demand increasing for the same level of usage, that pushes commodity prices higher. Thanks to the higher cost of ethanol over MTBE, the cost of gasoline increases even further, and because it takes more effort and energy to transport ethanol, the increased reliance on it impacts the supply even more and drives up the cost even further.

The best part of the story is that oxygenates aren't even necessary in modern automobiles. Gas providers used it in anticipation of a continuing federal requirement for oxygenates, but that has now ended. Oxygenates only improve emissions on cars with the more inefficient carburetors rather than fuel-injection systems and oxygen sensors. The cars handle the process automatically, without additives or federal oversight. Unfortunately, no one knew that the administration would eliminate oxygenation requirements altogether, and individual state formulations may still require it.

As usual, if someone wants to find a conspiracy on why markets don't behave rationally, one need look no further than Congress and the federal bureaucracy to find the dastardly plot.